2021 (9) TMI 1561 - SC - Indian Laws

Levy of royalty and charges for controlled release of water on Captive Power Producers (CPPs) - Alleged discrimination between Captive Power Producers (CPPs) and Independent Power Producers (IPPs) - whether the projects of CUMI and INDSIL are located at places where the advantage of controlled supply of water is assured and can be derived?. HELD THAT - The facts on record thus show that both the projects have certainly derived advantage of controlled supply of water as contemplated in Clause 14 of the Policy. How much benefit of controlled supply of water each of the projects has received or will receive in future would be a matter of computation and calculation - The Agreements entered into by CUMI and INDSIL show that the terms and conditions of the Policy including Clause 14 thereof were consciously incorporated in the Agreements. Both CUMI and INDSIL were alive to the fact that because of peculiar location, their units would certainly have the advantage of controlled supply of water - the absence of a specific clause, akin to Clause 14 of CUMI Agreement, in INDSIL Agreement, would be of no consequence. The relationship between the parties would be governed by Clause 14 of the Policy, as incorporated in the respective Agreements. Whether Clause 14 of CUMI Agreement and Clause 14 of the Policy which stood incorporated into the respective Agreements could be termed to be unconscionable and/or manifestly arbitrary? - HELD THAT - I cases where a term of contract or agreement entered into between the parties is completely one sided, unfair and unreasonable, where the other party having less bargaining power had to accept such term by force of circumstances, the relief in terms of the decision of this Court in Central Inland Water Transport Corporation 1986 (4) TMI 271 - SUPREME COURT can be extended. It may be stated that the Agreements were entered into after long deliberations where both CUMI and INDSIL had the advantage of legal counsel - It cannot be said that CUMI and INDSIL were in a position with lesser bargaining power or were so vulnerable that by force of circumstances they were forced to accept such term. Therefore, the concerned Clause in CUMI Agreement as well as the terms of the Policy that stood incorporated in the respective Agreements, cannot be termed unconscionable. There is nothing arbitrary or unreasonable in having such term in the Policy. Since the private entity or agency would stand to gain from and out of the capital outlay and infrastructure put in place by the State, some reasonable charges for such benefit would naturally be imposed. It was only under such Policy that both CUMI and INDSIL were given permissions to set up their electricity generating units and such term was consciously accepted by them. The distinction or classification brought out was based on a clear rationale with the object of reducing the additional burden on the consumers. Since the electricity generated by CPPs would be self consumed, there would be no such question of putting any ultimate or resultant burden on the common consumers. The basis for such distinction or classification was quite correct and as such this question was rightly answered by the Division Bench of the High Court against CUMI and INDSIL. Rather than being unnatural or irrational, the classification had a clear nexus or relationship with the object of reducing resultant burden on the common consumers. Imposition of royalty or charges on controlled supply of water on the ground of absence or lack of jurisdiction - HELD THAT - The expression 'Royalty' has consistently been construed to be compensation paid for rights and privileges enjoyed by the grantee and normally has its genesis in the agreement entered into between the grantor and the grantee. As against tax which is imposed under a statutory power without reference to any special benefit to be conferred on the payer of the tax, the royalty would be in terms of the agreement between the parties and normally has direct relationship with the benefit or privilege conferred upon the grantee - The controlled release of water made available to INDSIL and CUMI, has always gone a long way in helping them in generation of electricity. For such benefit or privilege conferred upon them, the Agreements arrived at between the parties contemplated payment of charges for such conferral of advantage. Such charges were perfectly justified. Appeal dismissed.

Issues Involved:
1. Legality of imposing royalty and charges for controlled release of water on Captive Power Producers (CPPs).
2. Alleged discrimination between Captive Power Producers (CPPs) and Independent Power Producers (IPPs).
3. Validity of contractual terms regarding royalty and controlled release of water.
4. Jurisdiction and nature of charges as tax or contractual payment.

Issue-wise Detailed Analysis:

1. Legality of Imposing Royalty and Charges for Controlled Release of Water on CPPs:
The core issue was whether the Government and the Board could levy royalty and charges for controlled release of water on CPPs like INDSIL and CUMI. The Policy framed by the Government of Kerala allowed private agencies to set up hydel schemes with conditions, including paying for controlled release of water. Both INDSIL and CUMI had agreements incorporating these terms. The Division Bench of the High Court found that the contractual obligation to pay for controlled release of water was valid, as it was a benefit enjoyed by the CPPs due to their specific locations. The Supreme Court upheld this view, stating that the charges were justified as they were part of a contractual agreement and not a tax.

2. Alleged Discrimination Between CPPs and IPPs:
The appellants argued that imposing charges on CPPs while exempting IPPs was discriminatory. The Division Bench differentiated between CPPs and IPPs, noting that CPPs generate electricity for self-consumption, whereas IPPs supply electricity to the Board for distribution. The rationale was that imposing charges on IPPs would increase the cost of electricity for consumers, which justified the exemption. The Supreme Court agreed with this classification, finding it rational and not discriminatory, as it aimed to reduce the burden on consumers.

3. Validity of Contractual Terms Regarding Royalty and Controlled Release of Water:
The appellants contended that the contractual terms were unconscionable and arbitrary. The Division Bench and the Supreme Court rejected this argument, stating that the contracts were commercial agreements entered into after negotiations, with both parties having legal counsel. The Supreme Court emphasized that the terms were not one-sided or unfair, and thus, not unconscionable. The agreements were found to be valid and binding.

4. Jurisdiction and Nature of Charges as Tax or Contractual Payment:
The appellants claimed that the charges were a form of compulsory exaction, akin to a tax, and lacked statutory backing. The Division Bench clarified that the charges were contractual payments for the advantage of controlled water supply, not a tax. The Supreme Court supported this view, distinguishing between tax and contractual payments, emphasizing that the charges were based on the benefit conferred by the controlled release of water, which was a privilege under the contract.

Conclusion:
The Supreme Court dismissed the appeals, upholding the Division Bench's decision. The Court affirmed that the charges for controlled release of water were contractual and justified, the classification between CPPs and IPPs was rational, and the contractual terms were valid and not unconscionable. The judgment reinforced the principle that parties to a contract are bound by its terms, especially when the terms are negotiated and agreed upon with legal counsel.

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